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The structure of the defense industry and the security needs of the country: a differentiated products model

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  • Benny Mantin
  • Asher Tishler
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    Abstract

    This paper models the interactions between the defense needs of the USA and Western Europe, which produce several heterogeneous defense goods, and the defense industry market structure. The results show that net defense costs of the USA and Europe are lower when the number of defense firms in each arms-producing country is small and when the world prices of the defense goods are high. The model predicts that the increase in world prices will crowd-out countries in the developing world from the market for modern weapon systems and may force them to develop and use 'cheap and dirty' weapon systems.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/1024269042000219323
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Defence and Peace Economics.

    Volume (Year): 15 (2004)
    Issue (Month): 5 ()
    Pages: 397-419

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    Handle: RePEc:taf:defpea:v:15:y:2004:i:5:p:397-419

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    Web page: http://www.tandfonline.com/GDPE20

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    Related research

    Keywords: Defense industry; Security levels; Net defense cost; Industry profits; JEL codes: H56; H57; L11; L13;

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    References

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    1. Andreas Blume & Asher Tishler, 2000. "Security Needs and the Performance of the Defense Industry," CIG Working Papers FS IV 00-04, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Smith, R P, 1980. "The Demand for Military Expenditure," Economic Journal, Royal Economic Society, vol. 90(363), pages 811-20, December.
    3. Maria del Carmen Garcia-Alonso & Keith Hartley, 2000. "Export controls, market structure and international coordination," Defence and Peace Economics, Taylor & Francis Journals, vol. 11(3), pages 481-503.
    4. Orlando I. Balboa & Andrew F. Daughety & Jennifer F. Reinganum, 2001. "Market Structure and the Demand for Free Trade," Vanderbilt University Department of Economics Working Papers 0112, Vanderbilt University Department of Economics, revised Dec 2002.
    5. Levine, Paul & Smith, Ron, 1995. "The Arms Trade and Arms Control," Economic Journal, Royal Economic Society, vol. 105(429), pages 471-84, March.
    6. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
    8. Levine, Paul L & Sen, Somnath & Smith, Ron P, 1993. "The Economics of the International Arms Trade," CEPR Discussion Papers 770, C.E.P.R. Discussion Papers.
    9. Anderton, Charles H., 1995. "Economics of arms trade," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 18, pages 523-561 Elsevier.
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